New Rules on Minimum Wages in China

Baker & McKenzie

The Chinese Ministry of Labor and Social Security (MOLSS) recently amended and reissued the Regulations on Minimum Wages (New Regulations), which replace its predecessor of 1993 (the Old Regulations). The New Regulations extend the scope of minimum wage protection to part-time workers and provide for more stringent penalties if an employer violates minimum wage requirement. Beijing and Shanghai Municipalities have amended their local implementing rules and/or minimum wage standards to make them consistent with the New Regulations.

1. Minimum Wage for Part-Time Workers: The New Regulations for the first time ever provide that part-time workers are subject to minimum wage protection. Employees who are paid on an hourly basis and work, on an average and accrued basis, not more than 5 hours each day and not more than 30 hours each week should not be paid less than the local minimum wage standard applicable to part-time workers. This minimum wage standard should be calculated on an hourly basis, which is different from the monthly minimum wage standard that applies to full-time workers.

As of 1 July 2004, the hourly minimum wage for part-time workers is RMB6.8 (including all social insurance contributions) in Beijing and RMB5.5 (excluding all social insurance contributions) in Shanghai. However, these municipalities only regard employees who work not more than 4 hours each day as part-time workers. By way of comparison, the monthly minimum wage for full-time workers is RMB545 (excluding all social insurance contributions) in Beijing and RMB635 (excluding all social insurance contributions) in Shanghai.

2. Minimum Wage During Paid Annual Leave: The Old Regulations of 1993 and their supplementary rules of 1994 provided that employees who are on “statutorily required leave” (such as home leave) should be subject to minimum wage protection. The New Regulations confirm this and further provide that employees who are on paid annual leave should also be subject to minimum wage protection. This new rule applies to both full-time and part-time workers.

3. Overtime by Exempted Employees: Under national laws, employees such as senior management that have been approved to work under the so-called “flexible working hour system” are not entitled to any overtime benefits. However, in Shanghai employees working under the flexible working hour system during statutory holidays are entitled to 300% of remuneration as overtime payment. Foreign investors in Shanghai should pay special attention to this special rule when implementing their internal employment policies.

4. Scope of Minimum Wage: Consistent with the Old Regulations, the New Regulations provide that the following elements of remuneration should not be included in the calculation of minimum wage, but should be paid on top of the local minimum wage standards:

4.1	overtime pay;
4.2	subsidies for working in hazardous environments (e.g. underground wells, extreme temperatures, toxic environment, etc.); and
4.3	other fringe benefits prescribed by laws and regulations.

In other words, the minimum wage standards only refer to the “base wage” payable to the employees rather than any top-up benefits or overtime payment.

Unlike the Old Regulations, the New Regulations appear to provide that social insurance contributions should not be included in the calculation of minimum wage. Shanghai has followed the national rule and does not include social insurance contributions into its minimum wage standard. However, Beijing includes social insurance contributions into its minimum wage standard. This may be seen as a protection for the employer, but it makes it difficult for employees to calculate what the minimum cash-out is.

5. Minimum Wage on Piece-Rate and Commission-Based Workers: For the first time, the New Regulations provide that piece-rate workers and commission-based workers are also subject to minimum wage protection. However, the New Regulations do not provide how such protection shall be achieved, but instead stipulate generally that the minimum wage standards should be based on “reasonable determination in view of the employees’ amount of production”. Beijing has not issued any regulation dealing with this point and labor officials there did not know how such determination should be made. It is advisable for investors to check local rules and policies carefully.

6. Heavier Penalties for Violation: If the employer violates any of the minimum wage requirements, it could be ordered by MOLSS and/or its local counterpart to pay the outstanding remuneration and penalty in the amount of 100% to 500% of the outstanding remuneration to its employees. This is substantially more than under the Old Regulations, which provided for more lenient penalties (i.e., 20% to 100% of the outstanding remuneration).

7. New Internal Announcement Requirement: Under the New Regulations, an employer should announce to all employees any new statutory minimum wage standard promulgated by the local government within 10 days upon its promulgation. Although the New Regulations impose this new affirmative obligation on employers, it has no effective penalties or enforcement mechanism.

It is worth noting that wages in China in theory are subject to “collective bargaining” between representatives of employers and employees (at least in cases where the labor union so requests, provided that the company has commenced business operations). The employer should also hear the labor union’s opinion in the board of directors before making any resolution on personnel-related matters such as wage levels.

By Baker & McKenzie

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